European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>Enagás achieved a 27% debt reduction post-Tallgrass sale, enhancing financial structure and boosting net profit guidance to over €280 million for 2024.</li>
<li>Regulatory updates may increase gas transport returns post-2026; expected financial returns could rise to 7% amid current interest rate conditions.</li>
<li>Enagás is investing in green hydrogen projects like H2Med, aligning with decarbonization goals and creating substantial growth potential.</li>
</ul>


Enagás achieved a 27% debt reduction post-Tallgrass sale, enhancing financial structure and boosting net profit guidance to over €280 million for 2024.
Regulatory updates may increase gas transport returns post-2026; expected financial returns could rise to 7% amid current interest rate conditions.
Enagás is investing in green hydrogen projects like H2Med, aligning with decarbonization goals and creating substantial growth potential.


Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>Our outlook remains bearish at the index level as downtrends remain intact on the MSCI broad global indexes and also within Japan, Hong Kong, Europe, Germany, and China.</li>
<li>Our preferred Sector overweights continue to be defensives (Utilities, Staples, and Health Care) and commodity Sectors (Energy and Materials).</li>
<li>The secular bull market in commodities (Bloomberg Commodity index, WTI and Brent crude oil, etc.) remains intact, which continues to support our overweight recommendations on the Energy and Materials Sectors.</li>
</ul>


Our outlook remains bearish at the index level as downtrends remain intact on the MSCI broad global indexes and also within Japan, Hong Kong, Europe, Germany, and China.
Our preferred Sector overweights continue to be defensives (Utilities, Staples, and Health Care) and commodity Sectors (Energy and Materials).
The secular bull market in commodities (Bloomberg Commodity index, WTI and Brent crude oil, etc.) remains intact, which continues to support our overweight recommendations on the Energy and Materials Sectors.


Still Bearish at the Index Level; Remain Overweight Defensives & Commodity Sectors

<ul>
<li>
<a href="https://www.smartkarma.com/entities/naturgy-energy-group-sa" target="_blank" data-smartkarma-citation="entities:21271:1" rel="noopener">Naturgy Energy Group SA (NTGY SM)</a> surprised the market by announcing its division into two listed companies: one for regulated network assets, and the other for liberalised businesses (generation &amp; commercialisation/marketing).</li>
<li>Naturgy is trading at 10.1x EV/2021a EBITDA and at a demanding 21.9x P/E, higher than Iberdrola SA (IBE SM)'s 16.3x and Endesa SA (ELE SM)'s 11.5x.</li>
<li>Strategies: pair trades long REE SM/short NTGY SM or long ENG SM/short NTGY SM. Risk: this strategy assumes that both CriteriaCaixa and IFM will stop acquiring shares of Naturgy.</li>
</ul>



Naturgy Energy Group SA (NTGY SM) surprised the market by announcing its division into two listed companies: one for regulated network assets, and the other for liberalised businesses (generation &amp; commercialisation/marketing).
Naturgy is trading at 10.1x EV/2021a EBITDA and at a demanding 21.9x P/E, higher than Iberdrola SA (IBE SM)'s 16.3x and Endesa SA (ELE SM)'s 11.5x.
Strategies: pair trades long REE SM/short NTGY SM or long ENG SM/short NTGY SM. Risk: this strategy assumes that both CriteriaCaixa and IFM will stop acquiring shares of Naturgy.


The bid was saved at the eleventh hour. As per the <a href="https://www.naturgy.com/files/14102021_IP_resultado_OPA_EN.pdf" target="_blank" rel="noopener">CNMV release</a>, IFM achieves 10.83% of the capital of <a href="https://www.smartkarma.com/entities/naturgy-energy-group-sa" target="_blank" data-smartkarma-citation="entities:21271:1" rel="noopener">Naturgy Energy Group SA (NTGY SM)</a> in the takeover bid. The fund waives the minimum requirement of 17% and complete the deal. There is no apportionment.From the bid announcement, IFM was confident that the partial takeover bid would succeed with at least 17% of the share capital tendered, but IFM reserved one last wild card, lowering the threshold to 10% (imposed by the banks' syndicate as the minimum to grant the financing). Thus ends one of the most controversial deals in Spain in recent years. The interesting question is what is IFM seeking in Naturgy. To obtain a paltry 10.8% it would have been much cheaper buying the shares in the market.Naturgy reduces its weight in the Ibex-35 as a result of the offer. After reducing the free float, the Technical Advisory Committee (CAT) of the index decided yesterday that it will take 20% ​​of Naturgy's capital as a reference for calculating the weighting, instead of the current 40%. Naturgy ended the session yesterday in 14th place on the Ibex, with a weight of 1.90%, according to the report by Bolsas y Mercados Españoles (BME).The adjustment will take place today Friday 15 October, at the close of the session with effect next Monday, 18 October.The loss of weight of Naturgy in the Ibex-35 may cause some investors that replicate indices to sell shares to adjust to the new scenario. Although the battle that is now opening in the council could act as support for the shares.After the takeover results were announced, Naturgy's shares soared and closed at €24, 4.62% more than on the prior session, possibly due to the accelerated repurchase of shares by hedge funds short the stock. Meanwhile, La Caixa is likely to continue buying shares to strengthen its position (up to 29.9%).Sell on strength.<ul>
<li>I do not see potential for meaningful gains at the current prices. The shares closed on 15 October at €23 (with c. €88 mn traded), exceeding Capital IQ consensus TP of € 22.25;</li>
<li>Lower liquidity after the takeover bid, given that the free-float is reduced from the current 27% to 16%. Its weight in the Ibex-35 will be reduced from 1.9% nowadays to approximately 1%. Some investors that replicate indices to sell shares to adjust to the new scenario. Although the battle that is now opening in the council could act as support for the shares.</li>
<li>Dividend yield at current prices remains below 5%. There are other options in the sector with greater potential for revaluation, higher liquidity and higher dividend yield (such as <a href="https://www.smartkarma.com/entities/red-electrica-corp-sa" target="_blank" data-smartkarma-citation="entities:21291:1" rel="noopener">Red Electrica Corp SA (REE SM)</a> and <a href="https://www.smartkarma.com/entities/enagas-sa" target="_blank" data-smartkarma-citation="entities:21266:1" rel="noopener">Enagas SA (ENG SM)</a>).</li>
</ul>

The bid was saved at the eleventh hour. As per the CNMV release, IFM achieves 10.83% of the capital of Naturgy Energy Group SA (NTGY SM) in the takeover bid. The fund waives the minimum requirement of 17% and complete the deal. There is no apportionment.From the bid announcement, IFM was confident that the partial takeover bid would succeed with at least 17% of the share capital tendered, but IFM reserved one last wild card, lowering the threshold to 10% (imposed by the banks' syndicate as the minimum to grant the financing). Thus ends one of the most controversial deals in Spain in recent years. The interesting question is what is IFM seeking in Naturgy. To obtain a paltry 10.8% it would have been much cheaper buying the shares in the market.Naturgy reduces its weight in the Ibex-35 as a result of the offer. After reducing the free float, the Technical Advisory Committee (CAT) of the index decided yesterday that it will take 20% ​​of Naturgy's capital as a reference for calculating the weighting, instead of the current 40%. Naturgy ended the session yesterday in 14th place on the Ibex, with a weight of 1.90%, according to the report by Bolsas y Mercados Españoles (BME).The adjustment will take place today Friday 15 October, at the close of the session with effect next Monday, 18 October.The loss of weight of Naturgy in the Ibex-35 may cause some investors that replicate indices to sell shares to adjust to the new scenario. Although the battle that is now opening in the council could act as support for the shares.After the takeover results were announced, Naturgy's shares soared and closed at €24, 4.62% more than on the prior session, possibly due to the accelerated repurchase of shares by hedge funds short the stock. Meanwhile, La Caixa is likely to continue buying shares to strengthen its position (up to 29.9%).Sell on strength.
I do not see potential for meaningful gains at the current prices. The shares closed on 15 October at €23 (with c. €88 mn traded), exceeding Capital IQ consensus TP of € 22.25;
Lower liquidity after the takeover bid, given that the free-float is reduced from the current 27% to 16%. Its weight in the Ibex-35 will be reduced from 1.9% nowadays to approximately 1%. Some investors that replicate indices to sell shares to adjust to the new scenario. Although the battle that is now opening in the council could act as support for the shares.
Dividend yield at current prices remains below 5%. There are other options in the sector with greater potential for revaluation, higher liquidity and higher dividend yield (such as Red Electrica Corp SA (REE SM) and Enagas SA (ENG SM)).


IFM/Naturgy: Tender Results & Ibex-35 Index Implications

The Spanish Government ends, de facto, the liberalizing regime that ruled over the Spanish economy since 1999, because it considers necessary to limit the possible acquisitions of strategic Spanish companies by ANY foreign investor after the COVID-19 hit.
The Spanish Government enhances anti-takeover rules:
<ul>
<li>Temporarily until June 30, 2021, the Government has suspended the liberalization regime for foreign direct investments made by residents and other countries of the EU and the EFTA. Any attempt to acquire over 10% of a Spanish listed company by any EU or EFTA corporate or investor must be approved by the Cabinet.
</li>
<li>In the case of investments of non-EU origin, the suspension of the liberalization regime is maintained indefinitely, until a new legislative change is introduced.</li>
<li>This protects the Ibex 35 companies from takeover raids by European rivals.</li>
</ul>
This rule could make it possible to avoid hypothetical bids of <a href="https://www.smartkarma.com/entities/total-sa" target="_blank" data-smartkarma-citation="entities:812:1" rel="noopener">Total Sa (FP FP)</a> or <a href="https://www.smartkarma.com/entities/eni-spa" target="_blank" data-smartkarma-citation="entities:21185:1" rel="noopener">Eni SpA (ENI IM)</a> for <a href="https://www.smartkarma.com/entities/repsol-sa" target="_blank" data-smartkarma-citation="entities:21292:1" rel="noopener">Repsol SA (REP SM)</a> or <a href="https://www.smartkarma.com/entities/deutsche-telekom-ag" target="_blank" data-smartkarma-citation="entities:21611:1" rel="noopener">Deutsche Telekom Ag (DTE GR)</a> for <a href="https://www.smartkarma.com/entities/telefonica-sa" target="_blank" data-smartkarma-citation="entities:21299:1" rel="noopener">Telefonica SA (TEF SM)</a> , which have been the subject of rumours in the market.
<ul>
<li>Analysts see Repsol and Telefónica as the most vulnerable members of the IBEX 35 index, due to their current low valuation. Repsol trades at 4.9x EV/Forward EBITDA vs. the median of comparable companies, 6.3x. Telefonica is trading at 5.2x EV/Forward EBITA vs. the median of comparable companies, 6.5x.</li>
</ul>
Some transactions that are underway could be affected. For example, the French group Vinci agreed to buy the industrial services division of ACS, for over €5 bn (for reference: <a href="https://www.smartkarma.com/insights/acs-unlocking-value-via-disposals" target="_blank" data-smartkarma-citation="insights:44311" rel="noopener">ACS: Unlocking Value Via Disposals</a>).

The Spanish Government ends, de facto, the liberalizing regime that ruled over the Spanish economy since 1999, because it considers necessary to limit the possible acquisitions of strategic Spanish companies by ANY foreign investor after the COVID-19 hit.
The Spanish Government enhances anti-takeover rules:

Temporarily until June 30, 2021, the Government has suspended the liberalization regime for foreign direct investments made by residents and other countries of the EU and the EFTA. Any attempt to acquire over 10% of a Spanish listed company by any EU or EFTA corporate or investor must be approved by the Cabinet.

In the case of investments of non-EU origin, the suspension of the liberalization regime is maintained indefinitely, until a new legislative change is introduced.
This protects the Ibex 35 companies from takeover raids by European rivals.

This rule could make it possible to avoid hypothetical bids of Total Sa (FP FP) or Eni SpA (ENI IM) for Repsol SA (REP SM) or Deutsche Telekom Ag (DTE GR) for Telefonica SA (TEF SM) , which have been the subject of rumours in the market.

Analysts see Repsol and Telefónica as the most vulnerable members of the IBEX 35 index, due to their current low valuation. Repsol trades at 4.9x EV/Forward EBITDA vs. the median of comparable companies, 6.3x. Telefonica is trading at 5.2x EV/Forward EBITA vs. the median of comparable companies, 6.5x.

Some transactions that are underway could be affected. For example, the French group Vinci agreed to buy the industrial services division of ACS, for over €5 bn (for reference: ACS: Unlocking Value Via Disposals).

Enhanced Limits to Investments in Spanish Companies

Spain

Enagas SA imports, stores, and transports natural gas. The Company imports liquid natural gas on methane carriers and operates regasification plants in Barcelona, Huelva, and Cartagena. Enagas also receives natural gas through pipelines over the Pyrenees Mountains and across the Strait of Gibraltar. The Company transports gas throughout Spain through its high-pressure pipelines.

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Enagas SA (ENG SM)

Enagas: Significant Debt Reduction

Enagás strengthens financial position through debt reduction, anticipates increased returns from gas transport post-2026, and invests in green...

Jesus Rodriguez Aguilar

Still Bearish at the Index Level; Remain Overweight Defensives & Commodity Sectors

Our outlook remains bearish at the index level as downtrends remain intact on the MSCI broad global indexes and also within Japan, Hong Kong,...

Vermilion Research

Demerger Plans for Naturgy

The demerger does not represent much upside potential in my view, other than paving the way for future corporate operations. Naturgy seems...

Jesus Rodriguez Aguilar

IFM/Naturgy: Tender Results & Ibex-35 Index Implications

IFM achieves 10.8%. Sell on strength on less potential for meaningful gains at current prices, lower liquidity and weight in the Ibex-35 will be...

Jesus Rodriguez Aguilar

Enhanced Limits to Investments in Spanish Companies

Any attempt to acquire over 10% of a Spanish listed company by any foreign investor must be approved by the Cabinet. This could prevent bids of...

Jesus Rodriguez Aguilar

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Enagas: Significant Debt Reduction

​Enagás strengthens financial position through debt reduction, anticipates increased returns from gas transport post-2026, and invests in green...

Jesus Rodriguez Aguilar

Still Bearish at the Index Level; Remain Overweight Defensives & Commodity Sectors

Our outlook remains bearish at the index level as downtrends remain intact on the MSCI broad global indexes and also within Japan, Hong Kong,...

Vermilion Research

Demerger Plans for Naturgy

The demerger does not represent much upside potential in my view, other than paving the way for future corporate operations. Naturgy seems...

Jesus Rodriguez Aguilar

IFM/Naturgy: Tender Results & Ibex-35 Index Implications

IFM achieves 10.8%. Sell on strength on less potential for meaningful gains at current prices, lower liquidity and weight in the Ibex-35 will be...

Jesus Rodriguez Aguilar

Enhanced Limits to Investments in Spanish Companies

Any attempt to acquire over 10% of a Spanish listed company by any foreign investor must be approved by the Cabinet. This could prevent bids of...

Jesus Rodriguez Aguilar

Enagás strengthens financial position through debt reduction, anticipates increased returns from gas transport post-2026, and invests in green...